The Australian economy is in trouble and Scott Morrison and the Liberal Party government need to come clean and acknowledge this and outline a framework how this period of economic funk is to be addressed.
By Stephen Koukoulas
The Liberal Party campaigned in the election on a “strong economy” and being “good economic managers”, bold claims that fly in the face of the latest score card for the economy. That scorecard shows a flood of what is, frankly, disappointing or even dismal economic news.
Australia is going through a very rare recession in per capita GDP terms and last month saw data showing zero inflation in the March quarter.
Contribution to these indictors of economic funk is the fact that well over half a trillion dollars of householder wealth has been destroyed as house prices have tumbled. Add to that the fact reported by the Australian Office of Financial Management last week that gross government debt is $543 billion, almost double the level that the Coalition government inherited in September 2013, and the scorecard is looking very ratty indeed.
As the ad man used to say, “but wait, there’s more”.
For the last four years, wages growth has been weak and at one stage fell to the lowest level on record. Then there are falling job advertisements, business investment as a share of GDP is at a 25 year low and over 13 per cent of the workforce is either unemployed or underemployed.
It is a scorecard for the economy that under Morrison’s watch must be rated an “F” for fail.
Of course, it must be noted, the Australian economy experiences cycles, up and down. But Australian economic history shows that in every other period of weakness, the slump has been driven by a mix of weaker global economic conditions and / or a severe downturn in commodity prices for the bulk of commodities we export.
When we check how these forces have fared in the last year, they show global growth strong and commodity prices booming.
This goes to show, quite plainly, that this is home-grown economic malaise.
Indeed, without the extremely positive influences from overseas, Australia’s current per capita recession would be something even more problematic, that is, growth and inflation would be even lower and the labour market weaker.
One way these problems are almost certainly going to be dealt with is interest rates. Such is the fragile nature of the economy that financial markets are pricing in the Reserve Bank of Australia needing to slice official interest to less than 1 per cent, yes, under 1 per cent, in an effort to arrest this increasingly poor economic performance.
Further than this, there are some well respected economists starting to actively consider Australia needing negative interest rates and money printing to overcome the disinflationary problems confronting consumers and business, especially if the house price fall continues and crunches into an already soft economic underbelly.
While negative interest rates and quantitative easing remain highly unlikely, it was the policy response implemented by many countries during the depths of the global financial crisis when those economies were struggling to cope with deep recessions.
There is also discussion about the new government, after the 18 May election, needing to rollout fiscal policy stimulus, mainly in the form of additional government spending in an effort to underpin growth. This may be needed if things get worse.
Either way, almost all economists are increasingly concerned about the lack of strength in the economy and just how far away it is from achieving above trend growth, full employment, a lift in wages growth and a return to a healthy rate of inflation between 2 and 3 per cent.
The economy is not strong, the labour market is still weak and inflation is well away from the target and falling. Morrison needs to acknowledge that and to say what he will do about it if he wins the election.
Stephen Koukoulas is one of Australia’s leading economic visionaries, past Chief Economist of Citibank, heading global research in London for TD and past Senior Economic Advisor to the Prime Minister.
First published May 1 2019 but adjusted 6 June after GDP figures release. See the original here: https://thekouk.com/item/676-watch-out-australia-there-s-a-flood-of-dismal-economic-news-on-the-horizon.html
More here from Greg Jericho too. “The biggest lie during the election campaign was that the economy was strong. Now we know how bad things really are. The government has run the economy into the ground .”